Household saving is defined as the difference between a household’s disposable income (wages, income of the self-employed and net property income) and its consumption (expenditures on goods and services.)

Editor's Letter : Future Imperfect

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There’s no doubt that many people who are currently working—even those who are currently well off—will face seriously hard times when they retire. State pensions in all the major economies are withering as the number of retirees grows and the funds available for each of them dwindle. Our cover story this month documents some of the distressing facts about not only the increasing problems facing state-funded retirement programs but also the shortfalls in funding of many corporate and private pension funds.

In Britain, for example, where successive governments have worked hard to encourage people to save for their own retirement, fewer than one in 20 people believe they will have enough money to live comfortably after retirement. In the rest of Europe, where governments are only now beginning to tackle the enormous issues facing state retirement programs, the situation may well be far worse. France’s state pension system is likely to be in the red within five years, for example.

It is hard to imagine that in these times of seemingly rising prosperity we could soon be seeing a generation of povertystricken pensioners. Yet it is not only possible, it is likely.

The accepted answer, of course, is to persuade people to make their own plans.That may be feasible for many middle- and higher-income earners, although even they are reluctant to squirrel away enough money. But for workers on lower incomes who lurch from one paycheck to the next, saving for retirement simply isn’t an option. Even those who do not have significant debts and who are earning a reasonable salary when they retire will find their standard of living plummets. In the US, where the need to save for retirement is far better understood than in Europe, many people will be in for a rude awakening when they begin to draw their pensions. According to some analysts, about half of the 401(k) plans in the US are underfunded.

Simply telling people to save more is just not enough. Even the most scrupulous savers will almost certainly underestimate their needs in retirement.What is needed is a complete overhaul of the pensions system.We know that state provision will no longer work and that few individuals will adequately fund their personal pension plans. It is up to employers to take the lead—and to show they really believe their people are their most important asset.